investor presentation august / september 2003files.investis.com/tomkins/pdfs/bond_pres.pdfsales...

1

August / September 2003Investor Presentation

2

Agenda

Section 1 Summary of Bond Offering

Section 2 Company Overview

Section 3 Business Profiles

Section 4 Strategy

Section 5 Financial Summary

Section 6 Investment Highlights

Appendix 1 Further Divisional Information

Appendix 2 Interim Results

3

Section 1 Summary of Bond Offering

4

Summary of Bond Offering

Issuer: Tomkins Finance plcGuarantor: Tomkins plcRatings: Moody's: Baa2 (Stable Outlook)

S&P: BBB (Stable Outlook)Size: GBP 200m BenchmarkMaturity: 10 year expectedListing: UKLA Documentation: EMTN ProgrammeJoint Bookrunners: BNP Paribas, Citigroup and HSBCPurpose: Term-out existing bank debtRoadshow Timetable: Friday 29th August 2003 – London

Monday 1st September 2003 – ScotlandTuesday 2nd September 2003 – London (Investor Lunch)

5

Section 2 Company Overview

6

Three Operating Groups

Market Cap: £2.0 bn Employees: 40,000

Annualised AnnualisedTurnover: £3,145m EBIT*: £273.9m

* Pre operating exceptional items and goodwill amortisation

60.3% Group sales

58.1% Group EBIT*

Industrial & AutomotiveIndustrial & Automotive

15.5% Group sales

17.1% Group EBIT*

24.2% Group sales

24.8% Group EBIT*

Air Systems ComponentsAir Systems Components Engineered & ConstructionProducts

Engineered & ConstructionProducts

7

Our Brands

8

End-Markets

10%--Other

11%--Non-residential construction

17%--Residential construction

19%9%10%Industrial

14%9%5%RoW auto

29%15%14%North American auto

TotalOEAMPercentage of Group Sales

43%19%

10%

28%

Automotive

Construction

Industrial

Other

• Diversity of end-markets provides resilience

• Market-leading positions in many of our markets

• 75% of Group sales into markets where we are number 1 or 2

• No one customer accounts for more than 6% of group sales

9

Management Structure

Ken LeverFinance Director

Dave CarrollExecutive Vice President

Richard BellPresident

The Gates Corporation

Tony ReadingChairman

Tomkins Industries Inc

Terry O'HalloranPresident

Air Systems Components

Jim NicolChief Executive

BOARD OF DIRECTORSDavid Newlands

Chairman

• Significant depth and breadth of experience

• Extremely active and knowledgeable Board

• Commended by NAPF for corporate governance structure ‘equal with the best’

• Ranked second in Euromoney corporate governance poll for developed markets

10

Section 3 Business Profiles

11

• 41% of sales

• #1 Globally

• Innovative product pipeline

• Powder metal technology

• 17% of sales

• Quality customer base

• Wide product range

• 15% of sales

• One of world’s largest suppliers

• #1 in North Am aftermarket

• 12% of sales

• World leader in RTPMS

• Large aftermarket presence

• 15% of sales

• High, stable margins

• Strong distribution chain

Industrial & Automotive

Power Transmission

Power Transmission

Fluid PowerFluid Power

Wiper SystemsWiper

SystemsFluid

SystemsFluid

SystemsOther

AftermarketOther

Aftermarket

12


Residential ConstructionResidential Construction Industrial / Commercial ConstructionIndustrial / Commercial Construction

• 39% of sales

• Highly branded product

• 30% share in highly fragmented market

• Strong distribution network

• 61% of sales

• Strong route to market; technical sales links with architects and engineers

• Strong market position in fragmented market

Highly branded product

ASC Hart & Cooley Lau Ruskin

13

Engineered & Construction Products

• 36% of sales

• Produces 1/4 of bath fixtures sold annually in the US

Strong customer relationships

LascoLasco PhilipsPhilips DexterDexter Material HandlingMaterial Handling

• 15% of sales

• Strong engineering capability

Held for disposal

• 27% of sales

• Very strong market position

Highly cash generative

• 23% of sales

Strong national distribution channels

14

Section 4 Strategy

15

Business Strategy

Product/process innovation

Commercialise new technologies• Electro-Mechanical Drive ‘EMD’

• Gates Engine Module ‘GEM 10®’

• Third generation RTPMS

• Moulded Micro-V® belt

• Asymmetric tensioner

• Validator®

Gates Engine Module

Asymmetric tensioner

Validator®

Moulded Micro-V® belt

16

Business Strategy

Expand Tomkins aftermarket presence• Market leadership

– ADI supplier of the year

– Aftermarket Award of Excellence (EITM)

– NAPA “Club 95”

• Expand upon major US presence

• New products including 3rd party

• Tomkins parts Gates

– European Teflon® blade

Timing Component Kit

Water Pump

Aftermarket expansion

17

Business Strategy

Manufacturing excellence

Implement lean manufacturing• Company wide initiative• 100% participation – staged • Net savings 2003

– Objective £18m– YTD savings £11m– Revised objective £20m

• Additional benefits– Reduced inventory– Freed up floor space

18

Business Strategy

Manufacturing excellence

Strategic Manufacturing Initiatives• Consolidated 19 facilities since May 2000

– £110m one time restructuring costs

– £90m capital expenditure

– Fixed cost elimination £50m (2004)

– Manpower reductions of 3,400

– Released property valued at £40m

• Exit non core businesses– Cobra

– Milliken Valve Company

– Gates Formed-Fibre

– European Automotive Hose

• Accelerating the programme– Production to lower cost areas

– Mexico, Poland, Asia

19

Business Strategy

Geographic expansion

Gates Unitta Asia• Excellent growth performance• Thailand plant

– AOE business launched

• China– Dominant market share– Investment in new capacity– Develop aftermarket business

GUATCSingapore

GUIC

GUTC

GUATCHong Kong

GUATC Taiwan

GNBC

Gates Korea

GUA (Unitta)

20

Business Strategy

Acquisitions & disposals

Powertrain hard-parts strategy• Stackpole acquired 18 June 2003

• Excellent growth

• Market leadership– Proprietary technology

– New products

– Leverage powertrain market– Outsourcing

– Modules

Focus on value enhancement• Powertrain• Bolt-on acquisitions in ASC• Disposal of non-core activities• Rigorous acquisition process

Powder metal transmission components

21

Business Strategy

Acquisitions & disposalsPowertrain hard-parts strategy

2002 2010

Total Value = $230 bnTotal Value = $230 bn

Outsourced$138 bn(60%)

Outsourced$30 bn(20%)

Insourced$120 bn(80%)

Insourced$92 bn(40%)

PowertrainContent per

VehicleTotal Value = $150 bnTotal Value = $150 bn

Source: Merrill Lynch

22

Section 5 Financial Summary

23

Highlights From Interim Results’ Announcement

• Performance in line with market expectations

• Positive performance in the Business Groups

• Continuing investment in Strategic Manufacturing Initiatives

• Improvements in margins in I&A

• ASC recovering from a weak Q1

• Cash positive before acquisitions and disposals

24

Summary Financials

£mSales 1,599.0 1,713.2EBITDA 184.6 208.2Operating profit 120.1 142.3

Net interest (1.9) 1.0

Net cash inflow from operating activities 136.3 255.1Capital expenditure (51.3) (70.7)Operating cash flow 85.0 184.4

Total Assets 2,352.2 2,492.2Total Debt (191.0) (207.4)Net Debt/Cash 29.6 203.8

H1 03 H1 02

25

Funding Considerations

• Strong cash generation in the business

• Net investment in SMIs tailing off

• Capital expenditure of around £160 million per annum

• Growth projects in Stackpole

• Pensions not a significant issue - funding requirement of around £30 million per annum (current year £20m)

• Cautious dividend policy

26

Redemption of Redeemable Preference Shares

Benefits:• Refinancing risk removed• $19m discount on redemption• Net financing costs reduced ($16m present value) • Efficiency of balance sheet increased

Sterling Bond Refinancing:• Preference shares redeemed on 26 August with bank debt/surplus cash• Part of bank debt to be refinanced with Sterling Bond• Interest hedges in place• Currency composition of net debt in line with currency hedging policy

27

Financial Strategy

Conservative financial policies with focus on value creation

• Ongoing strategic financial planning process aims to maintain:

• Overall prudent financial profile

• Current investment grade credit rating

• Aim to simplify capital structure (e.g. early redemption of redeemable preference shares)

• Aim to extend debt maturity profile and diversify funding sources

• Rigorous acquisition due diligence process provides high hurdle for acquisitions/disposals

• Targeted minimum level of EBIT/(net interest+preference share dividends) of >5x through the cycle

28

Current and Pro Forma Debt Maturity ProfileGroup Funding - Debt Facilities Maturity

0

200

400

600

800

1,000

1,200

Jun 0

3

Dec 0

3

Jun 0

4

Dec 0

4

Jun 0

5

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Jun 1

3

Date

£m

Current• Preference shares refinanced from debt facilities and existing cash resources

•£400m of committed bank facilities to remain largely un-drawn

• Significant proportion of total funding requirement drawn under long term instruments

0

200

400

600

800

1,000

1,200

Jun 0

3

Dec 0

3

Jun 0

4

Dec 0

4

Jun 0

5

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

Jun 1

2

Dec 1

2

Jun 1

3

Date

£m

Pro Forma

29

Section 6 Investment Highlights

30

Key Investment Criteria

Global engineering and manufacturing group, leading across three businessesWorld class company

Strong brands with leading market shares

Top-of-mind brands with significant market shares

Resilience through diverse product portfolio, customer base and end marketsBusiness resilience

Strong management Significant experience in the automotive and industrial sectors

Continual focus on product/process technology and innovation Lowest cost manufacturer of quality productsExpansion of aftermarket and geographical presence

Clear strategic direction

Aim to maintain current investment grade ratingsConservative financial profile

Baa2 (Moody’s) and BBB (S&P) ratings, with stable outlook

31

August / September 2003Investor Presentation

32

Appendix 1 Further Divisional Information

33


Source: CSM Auto/ US Census Bureau

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Prod

uctio

n un

its '0

00s

0.02.04.06.08.010.012.014.016.018.020.0

US S

AAR

2002 Production 2003 Production2002 SAAR 2003 SAAR

Auto Production & SAAREight months to: Dec ‘02 Dec ‘01Sales 1,263.9 1,301.1Operating profit* 115.0 106.4Operating margin* 9.1% 8.2%Net operating assets** 743.9 845.1Return on net operating assets* 15.5% 12.6%Return on invested capital* 8.0% 6.2%Capital expenditure 82.4 61.5Depreciation 57.0 58.2Cash generation* 80.2 59.2Employees 22,637 23,674*before operating exceptional items** excluding goodwill£ million

• North American production in H1 2003 was 3.2% below the level in H1 2002

• Western European production was down 0.2% in H1

• Seasonally adjusted annualised rate (SAAR) for H1 2003 was 16.1m units

• At the half year, the index of industrial production was 1.2% lower than June 2002.

• Industrial production rose 0.5% in July for the first time in the year

34


North American Construction

0

50

100

150

200

250

300

350

Jan

Feb Mar Apr May Jun Jul

Aug Sep Oct Nov Dec

Mill

ion

sq. f

t.

2002 Res 2003 Res2002 Non-Res 2003 Non-Res

Sales 325.7 341.7Operating profit* 33.8 36.7Operating margin* 10.4% 10.7%Net operating assets** 122.2 153.0Return on net operating assets* 27.7% 24.0%Return on invested capital* 11.4% 10.2%Capital expenditure 9.1 10.8Depreciation 12.4 11.0Cash generation* 40.7 45.9Employees 6,942 6,688*before operating exceptional items** excluding goodwill £ million

Eight months to: Dec ‘02 Dec ‘01

• Non-residential construction was down 8% in H1 03– Dodge forecasts a fall of 6% for 2003

• Housing starts have risen 2.6% vs H1 02

Source: Dodge

35


Index of US Industrial Production

107

108

109

110

111

112

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2002 2003

Sales 507.6 582.8Operating profit* 49.0 54.4Operating margin* 9.7% 9.3%Net operating assets** 195.9 251.1Return on net operating assets* 25.0% 21.7%Return on invested capital* 14.7% 12.3%Capital expenditure 14.2 9.0Depreciation 14.8 16.3Cash generation* 66.3 76.8Employees 9,953 10,291*before operating exceptional items** excluding goodwill £ million

Eight months to: Dec ‘02 Dec ‘01

• Benefit from strong US residential construction

• Year to date shipments of recreational vehicles are up 2.5%

• Manufactured housing market remains tough

Source: US Census Bureau

36

Appendix 2 Interim Results

37

Summary Statement of Profit & Loss – Half Year

159.0136.0

1.0(1.9)Interest149.094.7Profit before tax(35.0)(25.6)Tax at 27% (estimated rate for full year)

148.096.6Profit before interest

114.069.1Profit after tax

(5.3)(5.1)Goodwill amortisation153.3101.7Profit before goodwill amortisation

11.0(18.4)Non-operating exceptional items142.3120.1Operating profit(16.7)(15.9)Operating exceptional items

(4.7)(11.7)- Centre163.7147.7- Business Groups

Operating profit before operating exceptional items*:1,713.21,599.0Sales

June 2002June 2003£m

1. Encouraging performance

2. One off item in 2002

3. Investment in SMIs

4. Exit from non core businesses

*includes associates and before goodwill amortisation

38

Operating Profit – Half Year

142.3(16.7)159.0120.1(15.9)136.0Total before goodwill amortisation

(4.7)-(4.7)(11.7)-(11.7)Centre

147.0(16.7)163.7131.8(15.9)147.7Total of business groups

40.6-40.623.5(9.1)32.6Engineered & Construction Products

25.7(1.6)27.315.0(2.3)17.3Air Systems Components

80.7(15.1)95.893.3(4.5)97.8Industrial & Automotive

After operating

exceptional items

Operating exceptional

items

Before operating

exceptional items

After operating

exceptional items


items

Before operating

exceptional items

£m

June 2002June 2003

• Strong performance in Industrial & Automotive

• Good recovery in Q2 for Air Systems Components

• Engineered and Construction Products suffers from difficult business conditions

• Centre costs of ~ £2m per month

39

Non-operating exceptional items

-(32.6)Exit from non-core businesses

£m

(18.4)

2.9

33.1

(21.0)

(0.8)

June 2003 June 2002

11.0

-Profit on asset disposals

-Reversal of other provisions

(9.4)- Reinstated goodwill

20.4- Book (loss)/profit

Profits/losses on the disposal of businesses:

• Disposals of overseas valves and pumps

• Provision reversal mitigates effect of exit from European Curved Hose

• Profit on asset disposal due to insurance receipts

40

1.0(16.9)- Other

157.51,595.2June 2003

1.37.6- Fluid Systems

2.231.8- Wiper Systems

(4.9)2.2- Fluid Power

0.56.7- Powertrain

18.991.6- Power Transmission

Movement in:

138.51,472.2June 2002

Operating profit before

operating exceptional

items *

Sales$m

9.4%9.9%- before Operating Exceptional items

7.9%9.4%- after Operating Exceptional Items

Operating margin:

116.8150.3- after Operating Exceptional items

138.5157.5- before Operating Exceptional items

Operating profit*:

1,472.21,595.2Sales

June 2002

June 2003

$m

• Margins benefit from mix and cost reduction

• PT grows from non USA regions and aftermarket

• Aftermarket benefits Wiper Systems

• Growth in RPTMS in Fluid Systems

• Weak markets in Fluid Power

*before goodwill amortisation

Sales grow by 8.4% and operating profit up by 13.7%


41


27.9366.2June 2003

0.21.4- UK

(7.6)-- Plant closings

(1.8)(3.8)- Residential

(2.5)(14.7)- Industrial & Commercial

Movement in:

39.6383.3June 2002



items*

Sales$m



Operating margin:



Operating profit*:

383.3366.2Sales

June 2002

June 2003

$m


• Margin improvement in Q2

• Double digit margins in H2

• Weak OE market in Fans & Blowers

• Impact of plant closings

Market share gains in industrial and commercial construction when market down 8%

42



Operating margin:



Operating profit*:

624.1614.4Sales

June 2002

June 2003

$m

• Lower OE business in Bathware• Input costs in Fittings• Mix benefit in Wheels and Axles• Residential offsets MH weakness in Doors & Windows

• Recovering orders and margins in Material Handling• Negative underlying trend in Valves and Taps


0.415.9- Valves & Taps

(3.7)(1.4)- Fittings

(4.7)(18.7)- Disposals & Other

52.3614.4June 2003

3.00.3- Material Handling

(0.9)(0.5)- Doors & Windows

0.7(2.9)- Wheels & Axles

(1.2)(2.4)- Bathware

Movement in:

58.7624.1June 2002



items *

Sales$m

Difficult business conditions led to lower sales and operating profits and reduced margins.


43

Sales and Operating Profit Bridge

- Business Groups – underlying change:13.154.6- Industrial & Automotive

(7.0)-- Centre

120.11,599.0June 2003

(2.8)(4.0)- Engineered & Construction Products

(7.3)(12.0)- Air Systems Components

(0.8)-- Operating exceptional items

(2.5)(27.1)- Acquisitions and disposals

(14.9)(125.7)- Currency impact

Movements:

142.31,713.2June 2002

Operating profit*

Sales£m• Underlying net increase

in sales and operating profits in Business Groups

• £/$ exchange rate reduces operating profit by 10.5%

• Centre costs lower in prior period – benefit from provision reversal.


44

Strategic Manufacturing InitiativesCurrent year investment for Strategic Manufacturing Initiatives

Capital expenditure

One off costs

Capital expenditure

One off costs

Cash flowOperating exceptional

costs

16.5

13.5

2.0

-

11.5

3.0

-

-

3.0

£m

Best estimate for balance of year

30.3

18.8

8.4

0.8

9.6

11.5

0.2

0.3

11.0

£m

Six months to June 2003

--3.711.5

Projects started in 2003:


costs

Business Cash flow

11.1

0.7

3.0

-

7.4

0.4

0.9

6.1

£m

5.017.315.9Total Group

--9.1- Engineered & Construction Products

---- Air Systems Components

--2.4- Industrial & Automotive

5.017.34.4

---- Engineered & Construction Products

--2.3- Air Systems Components

5.017.32.1- Industrial & Automotive

Projects in progress in 2002:

£m£m£m

• Major new cost in H1 due to E&CP

• H2 mainly impacted by Elizabeth-town and the Wiper Systems European project

45

Strategic Manufacturing InitiativesEstimated future investment for Strategic Manufacturing Initiatives in progress

Capital expenditure

One off costs

Best estimate for 2004

-11.310.5

Projects started in 2003:


costs

Business Cash flow

18.7

-

0.4

10.9

7.4

-

1.6

5.8

£m

8.913.1Total Group

-1.0- Engineered & Construction Products

--- Air Systems Components

-9.5- Industrial & Automotive

8.92.6

--- Engineered & Construction Products

--- Air Systems Components

8.92.6- Industrial & Automotive

Projects in progress in 2002:

£m£m

• Well on with programme• Level of benefits in 2004

increased to ~ £50m• ~ £40m of property released

- £15m realised – further proceeds and profit on disposal.

• Relocation of Denver facility creates a further property profit opportunity.

46

Business disposals and exit from non-core businessesImpact on sales and profits of business disposals and planned business exits

Approximate financial performance in a full

year

June 2003£m

0.2

-

(0.9)

(2.4)

2.3

1.2

Operating profit/(loss)

272.8

97.9

63.4

20.0

49.8

41.7

Sales

(5.0)10.9- European automotive curved hose (I&A)

(2.7)31.2- UK valves and taps (E&CP)

1.349.3- Material handling (E&CP)

Planned exit:

4.916.6Six months to June 2003:

- Overseas Valves & taps (E&CP)

4.625.8Subsequent to June 2003:

- Formed fibre (I&A)

3.1133.8

Disposals:

Operating profit/(loss)

Sales

• Exit from European curved hose business eliminates operating loss in due course.

• Impact of Cobra and Formed Fibre disposals in full year ~ £10m operating profit

• Overall disposals and exits will improve operating margin and ROIC of remaining group

47

Cash Flow - Group

196.3EBITDA

(38.6)Working capital, excluding the effect of operating exceptional items

8.8Cash before acquisitions and disposals

9.2- Exceptional items – asset proceeds

(17.3)- Strategic manufacturing initiatives(43.2)- Business operations (net)

60.3Depreciation and amortisation before operating exceptional items

(136.8)Acquisitions and disposals

(128.0)Movement in net funds

(2.2)Currency and other(74.0)Tax, interest and dividends

85.0Cash flow from operations after exceptional items(4.8)Other operating cash flows

Capital expenditure:

(16.6)- Strategic manufacturing initiativesCash effect of exceptional items (including working capital):

136.0Operating profit before operating exceptional items and goodwill amortisationJune 2003£m

Cash positive after finance and tax

48

Cash Flow – Business Groups

(21.2)- Centre

106.2

(7.4)

85.0Cash flow from operations after exceptional items

113.6

(3.9)- Air Systems Components1.8- Engineered & Construction Products

76.8- Industrial & Automotive

24.2- Engineered & Construction Products10.5- Air Systems Components71.5- Industrial & Automotive

Cash flow from operations after exceptional items:

(5.3)- Industrial & AutomotiveExceptional items:

22.4- Engineered & Construction Products14.4- Air Systems Components

Cash flow from operations before exceptional items:June 2003£m

49

Pensions

Defined Benefit Schemes – deficit position

58.4Deferred tax at assumed rate of 30%

(136.4)Net of deferred tax deficit

(194.8)FRS 17 pension deficit on funded defined benefit schemes

December 2002 £m

Defined Benefit Schemes – pension charges and contributions

4.28.8Cash contributions

4.39.9Pension charge

June 2002June 2003 £m

H2 defined benefit pension charges and cash contributions broadly similar to H1

investor presentation august / september 2003files.investis.com/tomkins/pdfs/bond_pres.pdfsales...

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